Indiabulls Reit posts net property loss of $568,000

INDIABULLS Properties Investment Trust (IPIT) has posted a net property loss of $568,000 for the period May 7, 2008, to March 31, 2009, instead of the net property income of $103.3 million it had forecast for the April 1, 2008, to March 31, 2009, period in its listing prospectus.

The real estate investment trust (Reit) also booked a $1.01 billion impairment loss on development properties and a $232.1 million loss due to changes in fair value on investment property. These two items have not impacted on the trust’s cashflows or credit facilities.

Inclusive of a $284 million income tax credit due to reversing deferred tax liability in tandem with the reduction in portfolio valuation, the trust posted a net loss of $960.1 million for the latest period, against a $52.8 million net income forecast in its prospectus.

‘The trustee-manager is always in the process of evaluating various sources of funding and other means of effective capital management for IPIT, including carrying out a rights issue, though no firm decision has been taken to proceed with any specific means of fund-raising,’ Indiabulls Property Management Trustee Pte Ltd said.

IPIT’s gearing as at March 31 was 10 per cent.

The trust closed 0.5 cent lower on Friday at 31 cents.

Net asset value per unit at March 31 was 73.77 cents.

The Reit was listed on the Singapore Exchange in June last year with two properties in its portfolio, both uncompleted at the time of the trust’s flotation. Its units were then priced at $1 each.

One Indiabulls Centre Tower 1 has since been completed, with the second tower also completed except for the top floors for which the relevant regulatory approvals are pending. Also, Tower 1 of Indiabulls Finance Centre has been completed to initial plans.

The board has decided to stick to its earlier plan to include a residential component at One Indiabulls Centre, and the plan is to launch the residential project shortly, according to the latest results statement issued on Saturday.

In its Q3 FY2009 results statement, the Reit’s trustee-manager had said that leasing was expected to remain slow in the near term and the accelerated decline in demand for office space in its key target markets of the banking, finance, security and insurance sectors might result in the trust being unable to lease the properties at the forecast rates.

‘During the fourth quarter of FY2009, the trustee-manager has begun to see tentative signs of stabilisation in leasing activity,’ it added, with clients starting to make decisions regarding their real estate needs.

The trustee-manager has waived its entitlement to the management fee of about $2.2 million for Q4 ended March 31 to ‘demonstrate its commitment to manage the trust in the best interest of unitholders’. In all, the trustee-manager has waived total management fees of $7.3 million since the trust’s listing.

Indiabulls secures 4-year 2b-rupee loan

INDIABULLS Properties Investment Trust (IPIT) has secured a two billion rupee (S$61.73 million) four-year term loan for its One Indiabulls Centre property in Mumbai.

The loan is from LIC Housing Finance.

IPIT is an Indian real estate investment trust (Reit) that made its trading debut on the Singapore Exchange in June last year. One Indiabulls Centre was one of two properties in IPIT’s portfolio unveiled at the time of its initial public offering.

The loan is obtained through Indiabulls Properties Pte Ltd (IPPL), which owns One Indiabulls Centre. IPPL is in turn owned by the Reit. Corporate guarantee for the loan is provided by Indiabulls Real Estate (IBRE), the sponsor of IPIT.

‘The board of directors believes that securing this loan in face of severe global turmoil and economic downturn is a testimony of the quality of IPIT’s assets as well as the financial and business strengths of the sponsor,’ said the trustee-manager Indiabulls Property Management Trustee (IPMT).

The trustee-manager also said in its announcement yesterday that regulatory changes being considered by the Maharashtra state government would increase the floor space index in the area where IPIT assets are located from a maximum of 1.33 for residential projects to a maximum of 5 for five-star residential hotels.

The trustee-manager said that because of the possible regulatory changes, it is evaluating a proposal to develop a branded, luxury five-star residential hotel to replace the residential component of One Indiabulls Centre. IPIT has had preliminary discussions with various hotel chains.

The other property in the Reit’s portfolio, Elphinstone Mills, has been branded as ‘Indiabulls Finance Center’, to position the towers as a financial services hub.

The trustee-manager also announced that Tarun Tyagi, who was previously the chief financial officer of IBRE, has been appointed chief executive officer of IPMT, replacing Pankaj Thukral, who will resume his earlier role as IPMT’s CFO.

Mr Tyagi, 35, holds masters degrees from Columbia University and University of Illinois at Urbana-Champaign. He had worked at Goldman Sachs and Credit Suisse previously.

Vinesh Kumar Jairath, who once was principal secretary, Maharashtra, has been appointed as an adviser to Mr Tyagi.

Indiabulls too bullish on prospects

THE latest real estate investment trust (Reit) to list in Singapore, Indiabulls Properties Investment Trust, didn’t do too well when it went public two weeks ago.

The Reit raised $262.5 million from its initial public offer, lower than the maximum $288.8 million it had sought earlier. Shares were priced at $1 each, at the bottom of an indicated price band of $1-$1.10. The units closed at 92 cents yesterday.

The lower IPO pricing came even after an extension of the retail tranche offer.

But weak market sentiment was not the only reason for the poor IPO performance – there are also questions about the Reit’s attractiveness and its ability to deliver.

Let’s start off with the two properties in its portfolio – both uncompleted at the time of listing. One Indiabulls Centre (due for completion by the end of this month) and Elphinstone Mills (expected to be completed by the end of this year) are both located quite some distance from the main central business district in Mumbai.

Moreover, the trust’s advertised yields are quite bullish. At $1 a unit, dividend per unit (DPU) yield is expected to be 4.0 per cent for next year and a rather high 9.4 per cent for 2010.

The financial assumptions behind the numbers are pretty aggressive. For next year, the property income margin is expected to be 88 per cent. For 2010, the projected margin comes to 90 per cent. The projected yields are also dependent on building completion and leasing.

This year’s income delivery, for example, assumes One Indiabulls Centre’s completion and leasing by around end-June and Elphinstone Mills by around end-November.

The Reit also expects occupancies to be in the range of 95 per cent for its office and mall components once it receives the occupancy certificates (India’s equivalent of Singapore’s temporary occupation permits).

But at the time of listing, One Indiabulls Centre had secured leases for some 988,000 sq ft of space out of a total of some 1.87 billion sq ft of office and retail space. This means that just over half – 53 per cent – of the lettable area has been leased.

And over at Elphinstone Mills, no leases had been locked in at the time of the listing.

What all these mean are that while units in the Reit are priced on completed building valuations, they still bear the risks of completion delays, project costs running over, failures to secure the various needed approvals from authorities as well as leasing risks.

In the light of this, investors might be better off adopting a ‘wait-and-see’ approach and buying into the trust once the projects are completed and leased out.

There is also another interesting nugget in the prospectus – some of the Reit’s directors, who are also directors of Indiabulls Financial Services Limited (IBFSL) and its subsidiaries, have been named in legal proceedings initiated by IBFSL’s clients.

The trust says that ‘given the nature of the legal proceedings, the trustee-manager is of the view that the amount claimed by the claimants is not material and that the proceedings are in the ordinary course of business of the Indiabulls Group’.

But more details would be welcome.

With all this in mind, one is left wondering why Indiabulls pushed through a listing at a time when the market is weak, especially since units in the trust are tightly controlled. Most of the major shareholders have agreed to certain lock-up arrangements.

On Monday, Unitech Ltd, India’s second-biggest property firm, scrapped plans for a US$600 million Reit offering in Singapore and, instead, turned to private equity firms to fund its expansion.

Maybe Indiabulls Properties Investment Trust would have been better served taking the same route.

SINGAPORE – Indiabulls Properties Investment Trust opened flat at its IPO price of $1.00 but then fell as much as 7.5 per cent in its Singapore market debut on Wednesday.

MUMBAI – Indiabulls Properties Investment Trust said on Friday it had priced its initial public offer of shares in Singapore at $1 (73 US cents) each, the lower end of the indicative price band, to raise $353.5 million (US$259 million).